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Chapter 25: Q.21 (page 676)

What traits characterize a “conservative” central banker?

Short Answer

Expert verified

Committed to maintaining low and steady inflation is the trait of conservative central banker.

Step by step solution

01

Content Introduction

The stability bias of discretionary monetary policy is solved by a conservative central banker who places more emphasis on inflation stabilization than the social planner. The welfare costs of departing from the ideal level of monetary conservatism are asymmetric, as shown in this note.

02

Content Explanation

A central banker who is conservative is someone who has a great hatred for inflation. In other words, a conservative central banker would be appointed to project a strong anti-inflation stance and be devoted to maintaining low and stable inflation.

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Most popular questions from this chapter

In general, how does credibility (or lack thereof) affect the aggregate supply curve?

If, in a surprise victory, a new administration that the public believes will pursue inflationary policy is elected to office, predict what might happen to the level of output and inflation even before the new administration comes into power

How can the establishment of an exchange-rate target bring credibility to a country with a poor record of inflation stabilization?

Suppose the statistical office of a country does a poor job in measuring inflation and reports an annualized inflation rate of 4%for a few months, while the true inflation rate has been 2.5%. What will happen to the central bank's credibility if it is engaged in inflation targeting and its target is around 2%?

Various survey-based measures of inflation expectations are available reflecting consumer, market, and economists" outlooks. For instance, the Survey of Professional Forecasters (SPF) is available from the Philadelphia Federal Reserve at https//www.philadelphiafed.org/research-and-data/ real-time-center/survey-of-professional-forecasters/, while the well-known University of Michigan consumer inflation expectations survey is available at https://fred st1ouisfed org/series/MICH. Compare the most recent readings of inflation expectations of the SPF and Michigan survey to actual CPI inflation. In general, which one seems to be more accurate?
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